INTERPRETATION NOTE: NO. 72 (3 of 3)

5. Conclusion
The use of a company car for private or domestic purposes gives rise to a taxable benefit under the Seventh Schedule of the Act. The cash equivalent of the taxable benefit which must be included in the employee’s gross income is equal to the value of the private use less any consideration paid by the employee for that benefit.
The value of private use of a vehicle held by an employer otherwise than under an “operating lease” is generally equal to 3,5% per month of the determined value of the motor vehicle. The amount calculated must be apportioned if the motor vehicle is only used for part of a month (that is, 3,5% of the determined value of the motor vehicle multiplied by the number days of use of the motor vehicle in the month divided by the number of days in the month). The percentage may be reduced to 3,25% if the motor vehicle was the subject of a maintenance plan when it was acquired by the employer. The value of private use may not be reduced for temporary absences such as when the employee is away on work or the car is in for a car service.
The value of private use of a vehicle held by an employer under an “operating lease” is equal to the actual cost incurred under the operating lease plus the cost of fuel incurred on the same vehicle.
The calculation of the value of private use assumes the employee only uses the motor vehicle for private purposes and that the employer bears all the operating costs. However, on assessment an employee may, depending on the circumstances, qualify for a reduction in the value of private use to the extent the motor vehicle:
• is used for business purposes;
• to the extent the employee has borne the full costs of licence, insurance or maintenance (reduction not available if the vehicle is held under an operating lease); and
• to the extent the employee has borne the cost of fuel for private use (reduction not available if the vehicle is held under an operating lease).

Employees must maintain detailed records of business travel if they wish to claim these reductions, this is generally done in the form of a logbook. Special rules apply to an employee who has the right of use of more than one company car, and potentially, if the company car is a pool vehicle available to employees in general, or if the employee is regularly required to perform duties outside of normal office hours.
Employers are required to calculate and withhold employees’ tax on a monthly basis. With effect from 1 March 2011 when calculating the monthly employees’ tax withholdings, employers must include 80% of the cash equivalent of the taxable benefit as remuneration. This reduced withholding (previously 100% was included) takes into account potential reductions which may take place on assessment, for example, the business reduction. However, in the event that an employer is satisfied that at least 80% of the use of the motor vehicle during a year of assessment will be for business purposes, then only 20% of the cash equivalent of the taxable benefit is included as remuneration and is subject to employees’ tax.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE

Annexure A – The law

Section 1(1) Definition of the term “gross income”
“gross income”, in relation to any year or period of assessment, means—
(i) . . .
(ii) . . .
…but including, without in any way limiting the scope of this definition, such amounts (whether of a capital nature or not) so received or accrued as are described hereunder, namely—
(a) – (h). . .
(i) the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit or advantage granted in respect of employment or to the holder of any office, being a taxable benefit as defined in the said Schedule, and any amount required to be included in the taxpayer’s income under section 8A;

Paragraph 1 of the Fourth Schedule
“remuneration” means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, including—
(a) any amount referred to in paragraph (a), (c), (cA), (d), (e), (eA) or (f) of the definition of “gross income” in section 1 of this Act;
(cA) 80 per cent of the amount of any allowance or advance in respect of transport expenses referred to in section 8(1)(b), other than any such allowance or advance contemplated in section 8(1)(b)(iii) which is based on the actual distance travelled by the recipient, and which is calculated at a rate per kilometre which does not exceed the appropriate rate per kilometre fixed by the Minister of Finance under section 8(1)(b)(iii): Provided that where the employer is satisfied that at least 80 per cent of the use of the motor vehicle for a year of assessment will be for business purposes, then only 20 per cent of the amount of such allowance or advance must be included;

Paragraph 1 of the Seventh Schedule
“associated institution”, in relation to any single employer, means—
(a) where the employer is a company, any other company which is associated with the employer company by reason of the fact that both companies are managed or controlled directly or indirectly by substantially the same persons; or
(b) where the employer is not a company, any company which is managed or controlled directly or indirectly by the employer or by any partnership of which the employer is a member; or
(c) any fund established solely or mainly for providing benefits for employees or former employees of the employer or for employees or former employees of the employer and any company which is in terms of paragraph (a) or (b) an associated institution in relation to the employer, but excluding any fund established by a trade union or industrial council and any fund established for postgraduate research otherwise than out of moneys provided by the employer or by any associated institution in relation to the employer;
“consideration”, as respects any reference in this Schedule to any consideration given by an employee, does not include any consideration in the form of services rendered or to be rendered by the employee;

Paragraph 2(b) of the Seventh Schedule
2. For the purposes of this Schedule and of paragraph (i) of the definition of “gross income” in section 1 of this Act, a taxable benefit shall be deemed to have been granted by an employer to his employee in respect of the employee’s employment with the employer, if as a benefit or advantage of or by virtue of such employment or as a reward for services rendered or to be rendered by the employee to the employer—
(a) . . .
(b) the employee has been granted the right to use any asset (other than any residential accommodation or household goods supplied with such accommodation) for his or her private or domestic purposes either free of charge or for a consideration payable by the employee which is less than the value of such use, as determined under paragraph 6 in the case of an asset other than a motor vehicle or under paragraph 7 in the case of a motor vehicle; or

Paragraph 4 of the Seventh Schedule
4. Where any associated institution in relation to any employer has given any employee of that employer, by reason of the fact that the employee is in the employment of the employer, or as a benefit or advantage of such employment or as a reward for services rendered or to be rendered by the employee to the employer any benefit or advantage which, if such benefit or advantage had been given to the employee directly by the employer in the circumstances contemplated in paragraph 2, would have constituted a taxable benefit, such benefit or advantage shall for the purposes of this Schedule be deemed to be a taxable benefit granted by the employer to the employee and the cash equivalent of the value of such taxable benefit shall be determined accordingly.

Paragraph 7 of the Seventh Schedule
(1) For the purposes of this paragraph, “determined value”, in relation to a motor vehicle, means—
(a) where such motor vehicle (not being a vehicle in respect of which paragraph (b)(ii) of this definition applies) was acquired by the employer under a bona fide agreement of sale or exchange concluded by parties acting at arm’s length, the original cost thereof to the employer (excluding any finance charge or interest payable by the employer in respect of the employer’s acquisition thereof); or
(b) where such motor vehicle—
(i) is held by the employer under a lease (other than an “operating lease” as defined in section 23A (1)); or
(ii) was held by the employer under a lease (other than an “operating lease” as defined in section 23A (1)) and the ownership thereof was acquired by the employer on the termination of the lease,
the retail market value thereof at the time the employer first obtained the right of use of the vehicle or, where at such time such lease was a lease contemplated in paragraph (b) of the definition of “instalment credit agreement” in section 1 of the Value-added Tax Act, 1991 (Act No. 89 of 1991), the cash value thereof as contemplated in the definition of “cash value” in the said section; or
(c) in any other case, the market value of such motor vehicle at the time when the employer first obtained the vehicle or the right of use thereof:
Provided that—
(a) where an employee has been granted the right of use of such motor vehicle as contemplated in subparagraph (2) (other than a motor vehicle acquired under an operating lease as defined in section 23A (1)) and such vehicle, or the right of use thereof, was acquired by the employer not less than 12 months before the date on which the employee was granted such right of use, there shall be deducted from the amount determined under the foregoing provisions of this subparagraph a depreciation allowance calculated according to the reducing balance method at the rate of 15 per cent for each completed period of 12 months from the date on which the employer first obtained such vehicle or the right of use thereof to the date on which the said employee was first granted the right of use thereof; and
(b) where such motor vehicle was acquired by the employer from an associated institution in relation to the employer and the employee concerned had, prior to such acquisition, enjoyed the right of use of such motor vehicle, the determined value shall be the determined value as at the date on which the employee was granted the right of use of such motor vehicle for the first time.
(1A) . . . . . .
(2) Where an employee has been granted the right to use any motor vehicle as contemplated in paragraph 2(b), the cash equivalent of the value of the taxable benefit shall be so much of the value of the private use of such vehicle (as determined under this paragraph in respect of the period of use) as exceeds any consideration given by the employee to the employer for the use of such vehicle during such period, other than consideration in respect of the cost of the licence, insurance, maintenance or fuel in respect of such vehicle.
(3) (a) Where an employer’s rights and obligations under a lease in respect of a motor vehicle are transferred to his employee the employer shall for the purposes of this Schedule be deemed to have granted the employee the right to use such vehicle for the remainder of the period of the lease.
(b) In such case—
(i) any rentals becoming payable by the employee under the lease shall be deemed to be a consideration payable by him for the said right; and
(ii) the determined value of the vehicle shall be deemed to be an amount determined in accordance with the provisions of subparagraph (1)(b);
(4) Subject to subparagraph (10), the value to be placed on the private use of such vehicle shall be determined for each month or part of a month during which the employee was entitled to use the vehicle for private purposes (including travelling between the employee’s place of residence and his or her place of employment) and the said value shall—
(a) as respects each such month—
(i) be an amount equal to 3,5 per cent of the determined value of such motor vehicle: Provided that where the motor vehicle is the subject of a maintenance plan at the time the employer acquired the motor vehicle or the right of use thereof, that amount shall be reduced to an amount equal to 3,25 per cent of the determined value of the motor vehicle; or
(ii) where such vehicle is acquired by the employer under an “operating lease” as defined in section 23A (1) concluded by parties transacting at arm’s length and that are not connected persons in relation to each other, be—
(aa) the actual cost to the employer incurred under that operating lease; and
(bb) the cost of fuel in respect of that vehicle; and
(b) as respects any such part of a month, be an amount which bears to the appropriate amount determined in accordance with item (a)(i) or (ii) for a month the same ratio as the number of days in such part of a month bears to the number of days in the month in which such part falls.
(5) No reduction in the value determined under subparagraph (4) shall be made for the purposes of item (b) of that subparagraph by reason of the fact that the vehicle in question was during any period for any reason temporarily not used by the employee for private purposes.
(6) Where more than one motor vehicle is made available by an employer to a particular employee at the same time and the Commissioner is satisfied that each such vehicle was used by the employee during the year of assessment primarily for business purposes, the value to be placed on the private use of all the said vehicles shall be deemed to be the value of the private use of the vehicle having the highest value of private use or such other vehicle as the Commissioner may direct: Provided that the preceding provisions of this subparagraph shall not apply where the provisions of subparagraph (7) or (8) are applied.
(7) Where it is proved to the satisfaction of the Commissioner that accurate records of distances travelled for business purposes in such vehicle are kept, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of the vehicle, calculated under subparagraph (4), by an amount that bears to that calculated value the same ratio as the number of kilometres travelled for business purposes bears to the total amount of kilometres travelled in such vehicle during that year of assessment.
(8) Where it is proved to the satisfaction of the Commissioner that accurate records of distances travelled for private purposes in such vehicle (other than a vehicle acquired as contemplated in subparagraph (4)(a)(ii)) are kept and the employee bears—
(a) (i) the full cost of the licence for such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the licence for such vehicle the same ratio as the number of kilometres travelled for private purposes bears to the total number of kilometres travelled in such vehicle during that year of assessment;
(ii) the full cost of the insurance of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the insurance for such vehicle the same ratio as the number of kilometres travelled for private purposes bears to the total number of kilometres travelled in such vehicle during that year of assessment; or
(iii) the full cost of the maintenance of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the maintenance for such vehicle the same ratio as the number of kilometres travelled for private purposes bears to the total number of kilometres travelled in such vehicle during that year of assessment;
(b) the full cost of fuel for private use of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of the vehicle during that year of assessment calculated under subparagraph (4) by an amount determined for the total kilometres travelled for private purposes by applying the rate per kilometre for fuel fixed by the Minister in the Gazette for the purposes of section 8(1)(b)(ii) and (iii).
(8A) For the purposes of subparagraphs (7) and (8), if the employee contemplated in those subparagraphs is a “judge” or a “Constitutional Court judge” as defined in section 1 of the Judges’ Remuneration and Conditions of Employment Act, 2001 (Act No. 47 of 2001), the kilometres travelled between the judge’s place of residence and the court over which the judge presides must be deemed to be kilometres travelled for business purposes and not for private purposes.
(9) . . . . . .
(10) For the purposes of this paragraph the private use by an employee of a motor vehicle shall be deemed to have no value, if—
(a) (i) the vehicle is available to and is in fact used by employees of the employer in general;
(ii) the private use of the vehicle by the employee concerned is infrequent or is merely incidental to its business use; and
(iii) the vehicle is not normally kept at or near the residence of the employee concerned when not in use outside of business hours; or
(b) the nature of the employee’s duties are such that he or she is regularly required to use the vehicle for the performance of those duties outside his or her normal hours of work, and he or she is not permitted to use that vehicle for private purposes other than—
(i) travelling between his or her place of residence and his or her place of work; or
(ii) private use which is infrequent or is merely incidental to its business use.
(11) For the purposes of this paragraph, “maintenance plan”, in relation to a motor vehicle, means a contractual obligation undertaken by a provider in the ordinary course of trade with the general public to underwrite the costs of all maintenance of that motor vehicle, other than the costs related to top-up fluids, tyres or abuse of the motor vehicle, for at least a period of not less than three years and a distance travelled by the motor vehicle of not less than 60 000 kilometres from the date that the provider undertakes the contractual obligation: Provided that the contractual obligation may terminate at the earlier of—
(a) the end of the period of three years; or
(b) the date on which the distance of 60 000 kilometres is travelled by that motor vehicle.

Annexure B – Extract of income tax regulation: Fixing of rate per kilometre in respect of motor vehicles for the purposes of section 8(1)(b)(ii) and (iii) with effect from 1 March 2012

Where the value of the vehicle does not exceed R60 000:
• Fixed cost (Rand) – 19 492
• Fuel cost (c/km) – 73.7
• Maintenance cost (c/km) – 25.7

Where the value of the vehicle exceeds R60 000, but does not exceed R120 000:
• Fixed cost (Rand) – 38 726
• Fuel cost (c/km) – 77.6
• Maintenance cost (c/km) – 29.0

Where the value of the vehicle exceeds R120 000, but does not exceed R180 000:
• Fixed cost (Rand) – 52 594
• Fuel cost (c/km) – 81.5
• Maintenance cost (c/km) – 32.3

Where the value of the vehicle exceeds R180 000, but does not exceed R240 000:
• Fixed cost (Rand) – 66 440
• Fuel cost (c/km) – 89.6
• Maintenance cost (c/km) – 36.9

Where the value of the vehicle exceeds R240 000, but does not exceed R300 000:
• Fixed cost (Rand) – 79 185
• Fuel cost (c/km) – 102.7
• Maintenance cost (c/km) – 45.2

Where the value of the vehicle exceeds R300 000, but does not exceed R360 000:
• Fixed cost (Rand) – 91 873
• Fuel cost (c/km) – 117.1
• Maintenance cost (c/km) – 53.7

Where the value of the vehicle exceeds R360 000, but does not exceed R420 000:
• Fixed cost (Rand) – 105 809
• Fuel cost (c/km) – 119.3
• Maintenance cost (c/km) – 65.2

Where the value of the vehicle exceeds R420 000, but does not exceed R480 000:
• Fixed cost (Rand) – 119 683
• Fuel cost (c/km) – 133.6
• Maintenance cost (c/km) – 68.3

Where the value of the vehicle exceeds R480 000:
• Fixed cost (Rand) – 119 683
• Fuel cost (c/km) – 133.6
• Maintenance cost (c/km) – 68.3